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The Importance of Competition in Markets
The US Department of Justice has recently announced that StarKist has agreed to plead guilty to a charge of price-fixing in relation to a conspiracy with officials from other tuna companies to fix the price of canned tuna that ran from at least late 2011 to late 2013 and came to light in 2015. The company faces a potential fine of $100 million. The canned tuna market in the US has long been dominated by the following three companies: StarKist, Chicken of the Sea and Bumble Bee. Bumble Bee agreed to plead guilty in May 2017 and paid a fine of $25 million. Chicken of the Sea has not been charged because prosecutors say the company exposed the scheme and co-operated with the investigation.
- The key companies operating in the field of canned tuna, Chicken of the Sea, StarKist, and Bumble Bee agreed, to fix the prices for two years. By implementing this agreement, they eliminated free competition on the market and directly affected the formation of prices, thus depriving customers of appropriate choices.
- The relationships between the prices of canned tuna and raw tuna are based on the costs of transportation, preparation, canning, and marketing. In other words, the price of canned tuna is expected to be higher. In this case, the mentioned companies artificially increased the prices to obtain and maintain a maximum profit.
- After these companies were sued for colliding, it was known that Bumble Bee was communicating with Chicken of the Sea to merge (Kendall 2018). This means that their merging would make their actions legal, and price fixation would become stronger, thus making reducing competition on the market of canned tuna.
- As a result of the collusion, the US consumers had to pay more for canned tuna even though the price was raised artificially (Kendall 2018). At the same time, they had no choice to select the most relevant prices, depending on their income, location, and other factors that determine food purchase patterns.
The Australian Competition and Consumer Commission recently announced an inquiry into price competition among providers of foreign exchange services to consumers and small businesses.
- As reported by the World Bank, Australia sent approximately AU$8.8 billion overseas in 2016, which shows that it is the third most expensive countries among other G20 members (ACCC commences inquiry into foreign exchange 2018). The Australian Competition and Consumer Commission introduced the inquiry to decrease high charges that accompany sending money overseas.
- National Australia Bank (NAB), Australia and New Zealand Banking Group (ANZ), Westpac, Commonwealth Bank (CBA), (WBC), as well as Western Union, Travelex, and PayPal were the subject of complaints. Customers and small businesses claimed that these are the largest suppliers, which makes it difficult to find any other banks and money transferees with better fees.
- The inquiry will target the evaluation of purchase of foreign cash, barriers to effective price competition, and the very process of transferring money overseas. In addition, any difficulties for the entry of new suppliers would also be considered and addressed. This investigation should access the relevance of financial services to market regulations of Australia.
The European Union regulates Competition among suppliers to European consumers. This competition policy is designed to apply rules to make sure companies compete fairly with each other.
- The first reason is the fact that the collision of several companies may lead to a lack of proper competition and cause market failure. Other reasons refer to ensuring equality and equality as well as perfect knowledge of customers and suppliers to better control the performance of the latter (Ashwin, Taylor & Mankiw 2016).
In 2017, the European Commission imposed a €2.4 billion penalty after finding that Google had used its dominant search engine to skew the market in favor of its internet shopping service. Google is appealing against this decision.
- The EU claims that Google abused dominance by means of speculating search engine results to show its shopping service to users (Boffey 2017). These allegations were issued in accordance with EU antitrust rules and meant that Google illegally promoted its price comparison service, while preventing other similar services from being shown to customers. Thus, both customers and competitiveness of the market seem to suffer.
- In response, Google argued that it creates more choice for customers, allowing them to compare various products without searching them (Boffey 2017). In addition, it is stressed that the EU did not pay attention to the existence of such rivals as eBay and Amazon, which were, however, regarded by the court as not the competitors but customers of Google.
The European Union has recently imposed a record penalty on Google in the amount of €4.34 billion over “serious illegal behavior” to secure the dominance of its search engine on mobile phones. Google is appealing against this decision.
- The EU alleged Google of cementing the dominance of its search engine by using Android devices and making the mobile traffic go through their service (Google gets slapped with $5bn EU fine for android antitrust abuse 2018). This denies rivals of the opportunity to compete and innovate, while customers cannot benefit from the proper competition.
- Google claimed that the Android ecosystem allows customers to be connected through various brands and devices. The company also claimed that they ensure technical compatibility regardless of the shape and size of devices that can be modified as per a user’s will or supplier’s decision.
Supply and Demand in the Market and Prices
Swiss luxury conglomerate Richemont, owner of Cartier, Piaget, Vacheron Constantin and other brands, revealed recently that it is struggling to emerge from a sharp pullback from Chinese consumers that shocked the industry a few years ago. A major part of the problem is that a change in policy by the Chinese government to reduce corruption has resulted in a sharp decline in demand for luxury Swiss watches.
- As reported by Neate (2017), Swiss watches sales decreased by ten percent after the Chinese new policy, while China constituted approximately 28 percent of the global share. Since Chinese customers tend to purchase fewer watches, the total revenues of Richemont also decline.
- The new policy considers the most preferred gift for Chinese businessmen as bribery and prohibits such presents. Accordingly, both who wanted to use watches as gifts and those who wanted to receive them had to refuse from this idea. The total purchases have fallen significantly, decreasing the role of Swiss luxury watches on the market.
- Richemont and others suppliers may focus on related markets in Vietnam, South Korea, India, and so on to expand. In order to grow sales, the companies may also develop a more elaborate marketing strategy that would promote the value of luxury watches and allow supporting prices (Ashwin, Taylor & Mankiw 2016).
As we discussed previously in class, concerns around oil supply drove the price of oil to a four-year high above $85 per barrel in early October. Since then, oil prices have fallen below $70 per barrel as concerns around oil supply have faded away.
- The US sanctions on Iranian oil production were compensated by the former, while Russia, US, and Saudi Arabia raised suppliers affecting the decline in the price of oil per barrel (Major oil producers to consider cuts after price slide 2018). As for Iraq, one should note that the country slowed its oil production, targeting the future reinvention and use of more locations.
Consumer Preferences and Products
Apple is one of the world’s most successful and profitable companies. The company has recently announced a series of updates across its product lines along with new pricing strategies that seem designed to extend product life cycles and maintain growth in revenue and profit margins as the products mature.
- A product life cycle is a period from the moment of the initial appearance of the product on the market until its termination phase that depends on demand, upgrades, and others factors. The life cycle is described by the change in the indicators of sales and profits over time and consists of the following stages: the beginning of sales (introduction to the market), growth, development, and saturation followed by a decline.
- Describe steps taken by Apple to extend the Product Life Cycle for each of the following products:
- Macs are extended by innovations in both design and hardware of computers.
- iPhones are released once a year to maintain customers attention and support their desire to constantly renew their devices (Saxena 2018).
- iPads were extended since they brought new opportunities to customers, thus supplementing previously released devices, which is extended by the constant addition of new features.
- iWatches were presented as the devices to control a person’s life by notifying of events, which was later complemented by key health indicators’ measurement and storage.
- Describe the pricing strategies being implemented by Apple and explain the likely impact on quantities demanded for the following products:
- Macs support price maintenance based on the popularity of this computers worldwide, which is likely to positively impact their demand.
- iPhones are presented on the market in at least three different models, which ensures that customers may select devices by price since the older models are cheaper, also making a beneficial impact (Więcek-Janka et al. 2017).
- iPads are priced based on customer loyalty and entrance in Apple eco-system, which is likely to keep customers devoted to this brand (Brown 2018).
- iWatches’ pricing strategy focuses on the comparison with other smart watches and Apple’s personal attitudes towards its brand authority.
- Describe steps taken by Apple to extend the Product Life Cycle for each of the following products:
ACCC commences inquiry into foreign exchange 2018. Web.
Ashwin, A, Taylor, MP & Mankiw, NG 2016, Business economics, Nelson Education, Hampshire.
Boffey, B 2017, Google appeals against EU’s €2.4bn fine over search engine results. Web.
Brown, SC 2018, Apple’s new pricing strategy: is it good news or bad news for Android? Web.
Google gets slapped with $5bn EU fine for android antitrust abuse. 2018. Web.
Kendall, B 2018, StarKist to plead guilty to price-fixing canned tuna. Web.
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Neate, R 2017, Hard times for luxury Swiss watches as sales drop 10%. Web.
Saxena, D 2018, Understanding product life cycle through Apple iPhone. Web.
Więcek-Janka, E, Papierz, M, Kornecka, M & Nitka, M 2017, ‘Apple products: a discussion of the product life cycle’, Advances in Economics, Business and Management Research, vol. 31, pp. 159-164.